Delahunt: Medical marijuana no 'golden calf' for dispensaries

Former US Rep William Delahunt says he doesn't anticipate making money for several years on medical marijuana despite the generous salary estimates and revenue projections for the dispensaries he and his group hope to open by the summer.

HYANNIS — Former U.S. Rep. William Delahunt says he doesn't anticipate making money for several years on medical marijuana despite the generous salary estimates and revenue projections for the dispensaries he and his group hope to open by the summer.

"It's not the golden calf or the golden cow," Delahunt said during a wide-ranging conversation Thursday about Medical Marijuana of Massachusetts, the nonprofit that has secured three provisional registration certificates from the state Department of Public Health.

One dispensary will be in Mashpee; the others will be located in Taunton and Plymouth.

Although the license application lists a salary of $250,000 for Delahunt, he said it is unlikely that he or the organization's other officers would make any money in the near future.

But the large amounts of cash generated by the organization and others like it won't just go up in smoke, according to the nonprofit's leaders.

The capital investment required to kick off the venture is substantial. Security systems, equipment and facilities improvements are expected to cost more than $4 million for the three dispensaries and a cultivation facility in Plymouth, said Jonathan Herlihy, chief operating officer, on Thursday. Operating expenses, including salaries, insurance, rent, fees and taxes, would run about $14 million in the first year, he said.

Delahunt's organization has secured loans and in-kind contributions totaling $2.4 million from a separate management company run by Herlihy and fellow Medical Marijuana of Massachusetts directors Elizabeth Nowlan and Lianne Ankner. Delahunt's name was removed as a member of the management company Feb. 27, according to a filing with the Massachusetts Secretary of State's office.

The management company will collect 8 percent annual interest on a loan of $1.39 million through 2020. Investors will get a 10 percent return once profits are coming in, Herlihy said.

The management company also will provide other services, including construction of the cultivation facility and dispensary, purchasing of equipment, securing permits and zoning approvals, and preparing the application and other documents, for which it will receive 50 percent of the group's revenue, according to the application.

That figure is an upper ceiling and likely will be 35 to 40 percent, Herlihy said.

"All the costs are going to be absorbed by the management company," said Delahunt, the former Norfolk County district attorney.

In the first year, Medical Marijuana of Massachusetts operating debt would be about $3 million, according to Herlihy.

But once the capital costs and operating debt are paid off, the reward could be substantial. Total revenue at the Mashpee facility for year one is estimated at $3.4 million.

By year three, it's estimated at $6.3 million, according to the application.

The group has deposited the $2.4 million with Century Bank, a state charter bank in Medford, but still needs to raise about $4 million more to get all three dispensaries up and running, Herlihy said.

An official with Century Bank did not return a message Thursday seeking comment.

Because it's not a tax-exempt nonprofit, Medical Marijuana of Massachusetts will have to pay various taxes, including income, withholding for Social Security and other purposes, workers' compensation coverage, real estate taxes (covered in its leases) and corporate taxes. But federal law classifying marijuana as a schedule I drug does not allow owners to deduct certain expenses for federal tax purposes.

There is federal legislation pending to change how the federal government regulates taxation of marijuana businesses but until that changes, no one will make money on medical marijuana, Delahunt said.

"I don't think we're going to see money for a long period of time," Delahunt said. "If the tax code changes, then maybe we get paid."

According to a market research report produced by Arcview, a marijuana-industry group, the national projection for the marijuana industry in 2014 is $2.57 billion, derived primarily from medical marijuana, said Taylor West, deputy director with the National Cannabis Industry Association.

In Massachusetts the projection is $56 million for 2014, West said.

Although the industry is growing quickly, there are still hurdles, she said. "It's an interesting situation in (that) a lot of people think that the industry is just one massive cash cow," she said.

Delahunt said his decision to become involved in the medical marijuana business is not about the money.

"During my time in Congress, many of those in law enforcement that I knew and would maintain contact with became very concerned about what is called pharmaceutical painkillers, which is really pharmaceutical heroin," he said Thursday.

The abuse of prescription drugs became a huge problem, and he is interested in the idea that marijuana might supplement or supplant the use of painkillers, Delahunt said.

Medical Marijuana of Massachusetts is planning to participate in research to help determine the efficacy of marijuana for that purpose, Delahunt and Herlihy said.

"Until 1936 you could get marijuana in a pharmacy in the United States of America," Herlihy said. "I'm hoping that it is the cure-all. We don't know yet."